Tesla Could Not Sell Directly to Consumers

In 2003, a group of engineers from Silicon Valley established Tesla Motors. From their base in Palo Alto, California, these engineers set out to build the first fully electric cars that would be environmentally friendly. However, the company decided that it was going to sell directly to consumers instead of using a huge franchise or dealership as is common in the motor industry.

The decision marked the start of numerous problems for this young company. For some time, the idea has been strongly opposed by car companies who claim it is against the industry norm. These gas-free cars could be an important step toward achieving a cleaner environment though they have been prohibited in almost all the states in the United States. However, research reveals that electric vehicles have several advantages including lower fuel costs, increased energy security, reduced emissions, and improved fuel economy.

Apparently, the company is facing opposition because many states in the U.S. have passed laws that require a three-level system in distribution. These laws require that a manufacturer sells to a distributor who is then required to sell to a retailer. The retailer then delivers the car to the final consumer. Simply stated, manufacturers cannot bypass the various levels of distribution and sell directly to consumers. The reason for such a law is that back in the day, it was feared that bigger and national manufacturers would have disparate power compared to dealers or distributors who were smaller or local.

Case in point, a long time ago, an individual named Hank, who lived in Michigan, started manufacturing cars. However, he could not sell his cars in New Jersey because he did not know people from that area nor did he own space there. Hank found Dan from New Jersey. Dan was capable of selling the cars because he knew people and owned space. Dan bought plenty of cars for his dealership and later sold the cars to make a profit. The advantage here is that Hank had been saved the hustles of having to locate individual customers.

Later, Hank discovered that Dan was making enormous profits, and he figured that since people were already familiar with his cars, he could go ahead and sell them on his own. The decision would mean that Dan was going to be ‘kicked out’ and he would be out of business. Dan decided to consult some friends, and together, they pulled funds to pass a law that would ban Hank from selling directly to the public. The group was protecting its investments.

Once the law was passed, it meant that the relationship between Hank and Dan would be permanent, and Hank had to keep selling his cars to Dan. New Jersey lawmakers felt good that they had protected their own from a greedy Michigan manufacturer. Years later, dealers in other states passed similar laws. The laws have gotten harsher, with some even making it illegal to establish a dealership within 10 miles of another dealership.

As a result, Tesla has been caught in these laws. The company wants to sell directly to consumers without going through an intermediary. However, in the present day, laws in almost all states require motor companies to go through a dealer. This method is also used in other industries. For instance, in the alcoholic beverage industry, a manufacturer has to find a dealer to sell directly to consumers.

Tesla should be allowed to sell their cars in all American states. There are claims that the company will have an unfair advantage if it sells directly to consumers. However, that is debatable. In fact, it would be fair to say Tesla is at a disadvantage for bringing in a new commodity to a market that has grown over the years. As a matter of opinion, these protectionist laws are not necessary for the 21st century. Such laws will only impede development and keep manufacturers tied to deceitful dealers.

Opinion Written by Brian Obudho
Edited by Leigh Haugh

Sources:
Auto Blog–Why Can’t Tesla Sell Directly to Consumers Wherever It Wants?
Washington Post–Why Tesla Keeps Fighting for Direct Sales When It Could Just Work With Dealers
Engadget–Why Tesla Motors Can’t Sell Cars in Most of the United States
Reddit–What Is the Argument Against Tesla Selling Cars Directly to Consumers?
Featured Image Courtesy of WikiMedia Commons – Creative Commons License

One Response to "Tesla Could Not Sell Directly to Consumers"

Michigan’s prohibition of Tesla direct sales is among the worst. It also prohibits Tesla from doing any repairs in Michigan so all those Michigan talented people who are employed by and know how to fix Tesla must work in another state. For example, Ohio is among the states that reaps profits from Michigan’s short sighted protection law because it collects Tesla sales tax, Servicing (for cars that are towed from Michigan) tax, property tax, employment tax and so on…